MGMT 8625M Week 3 Decision Rights Map Example

Nine Recurring Decisions and Who Really Settles Them: A Decision Rights Map of a Sponsor-Owned Industrial Distributor, Separating the Right Written in Documents From the Say Exercised in Practice and Placing Its Lenders Where the Covenants Put Them

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Walden University

MGMT 8625M: Leadership Through Changing Financial Organizational Structures

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Month Day, Year

Nine Recurring Decisions and Who Really Settles Them: A Decision Rights Map of a Sponsor-Owned Industrial Distributor, Separating the Right Written in Documents From the Say Exercised in Practice and Placing Its Lenders Where the Covenants Put Them

Why Map Before Redrawing

Keystone Fastener Supply, a composite distributor of industrial fasteners and maintenance supplies with 46 branches in the Midwest, was bought by a private equity sponsor in 2023. Its new owners expect to reorganize authority over the next year. This map records who holds each of nine recurring decisions today, before anything moves. It separates the authority written in the company's documents, the operating agreement, the delegation of authority policy and the credit agreement, from the say exercised in practice, which comes from interviews with the chief financial officer, two regional vice presidents and three branch managers.

The Map

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The first four columns come from the documents. The last column, which records who actually settles the matter when the written holder and the practical one differ, comes from interviews and is a reading, not a fact.

Table 1

Decision Rights at Keystone Fastener Supply, 2026

Formal and Real Authority

Aghion and Tirole (1997) distinguished formal authority, the right to decide, from real authority, effective control over decisions, and argued that real authority follows information: a principal who holds the formal right but lacks the information to use it will often defer to the agent who has it. The map shows this in three rows. Branch managers settle large pricing exceptions in practice, although regional vice presidents approve them on paper, because only the branch manager knows the customer's alternatives. Regional vice presidents decide branch openings, although the chief executive approves them, because they hold the local market studies. The sponsor's operating partner settles the budget and senior hires, though the board approves them, because the partner prepared the investment thesis the budget serves.

Lenders as a Silent Approver

Three rows show the lenders as an approver or blocker through the credit agreement's covenants. New borrowing above the agreement's baskets requires lender consent. Distributions to the sponsor are limited to a share of excess cash flow and barred while debt exceeds 4.5 times earnings. Acquisitions above $25 million and capital spending above an annual cap also need consent. Smith and Warner (1979) explained that such covenants exist to control conflicts between lenders and shareholders, limiting actions that could shift value from one to the other. Nini et al. (2012) found that after covenant violations, creditors used these rights to influence investment, financing and even management, with firms reducing acquisitions and capital spending. At Keystone, debt currently stands at 4.2 times earnings, close enough to the limit that lenders effectively settle two decisions already.

Why the Four Columns Matter

Separating proposing, approving, blocking and being told reveals roles a single approval column would hide. The chief financial officer, for example, approves few decisions but can block pricing exceptions and must be told of branch openings, which gives that role influence across the business without formal ownership of any decision. The lenders never propose or approve anything, yet they can block four of the nine. A conventional chart would show neither.

How the Sponsor Shapes the Map

The sponsor appears in the formal columns only through its two board seats, but its operating partner settles two decisions in practice. That gap reflects how many sponsor-owned firms run: the investment thesis, prepared before the acquisition, becomes the reference point for budgets and hires, and the person who wrote it carries authority the documents do not grant.

Divergences Left for Later

The map records four rows where the written and practical holders differ. It does not judge whether those divergences are problems. Some may reflect sensible deference to information; others may hide accountability gaps. That judgment belongs to the redesign the sponsor plans, which should start from this record rather than from the organization chart.

Limits

The practical column rests on six interviews and may reflect the views of those interviewed. Observing actual decisions over a quarter would test it.

References

Aghion, P., & Tirole, J. (1997). Formal and real authority in organizations. Journal of Political Economy, 105(1), 1-29. https://doi.org/10.1086/262063

Nini, G., Smith, D. C., & Sufi, A. (2012). Creditor control rights, corporate governance, and firm value. Review of Financial Studies, 25(6), 1713-1761. https://doi.org/10.1093/rfs/hhs007

Smith, C. W., & Warner, J. B. (1979). On financial contracting: An analysis of bond covenants. Journal of Financial Economics, 7(2), 117-161. https://doi.org/10.1016/0304-405X(79)90011-4